The Hold Was Priced. The Dot Wasn’t.
The Federal Open Market Committee voted 12-0 on June 17 to keep the federal funds rate at 3.50%-3.75% for the third straight meeting, a unanimous pause that markets had priced at 97% on June 13. The decision itself is not the story. The story is what the Summary of Economic Projections underneath it now implies, and the conspicuous absence of one name from the dot grid: the new chair, Kevin Warsh, who confirmed at his first press conference that he declined to submit an individual rate forecast. The policy rate is unchanged, but the map of where the FOMC thinks the rate is headed has been redrawn, and the new chair has used his first act of communication to put a quiet question mark over the entire dot-plot exercise itself. For markets that have spent two years trading the dot as a real forecast, that is the trade.
By the numbers, the June SEP walks back the March projection. The median policymaker now sees the federal funds rate ending 2026 at 3.875%, above the current 3.625% midpoint, a flip from March when the median still pointed to a cut. Headline PCE inflation for 2026 was lifted to 3.0% from 2.7%, core PCE to 2.9% from 2.6%, and real GDP growth to 2.1% from 1.9%. The unemployment projection was held at 4.3%. Seventeen of the 18 remaining FOMC members now judge the risks to inflation as tilted to the upside, the most skewed inflation-risk reading since 2022. The committee’s own growth and inflation forecasts are no longer the soft landing the March dot assumed.
Why Warsh Withheld His Dot
Warsh has been an open critic of the dot plot since his April 21 confirmation hearing, where he told the Senate that the Fed tells the world what their dots are going to be and then holds onto those forecasts longer than they should, language aimed at the 2021 to 2022 episode when the dot plot signalled no rate hikes for years and the Fed was forced to pivot sharply once inflation arrived. By declining to submit a dot, Warsh is not signalling where he personally thinks rates go, he is signalling that the dot as a forecasting instrument is itself under review. He told reporters he is forming task forces to overhaul major Fed operations including the dot, the press conference cadence, minutes, and the SEP itself, with a year-end review due.
That is a procedural choice with a market consequence. With Warsh’s dot absent, the remaining 18 dots cluster more tightly than usual. The 2026 dots range from 3.375% to 4.500%, with a central tendency of 3.625% to 4.125%. The committee is now closer to evenly split between holding and hiking. The longer-run dot, the so-called neutral rate, ticked up to 3.000% from 2.875%, a small move that nonetheless puts additional upward pressure on the entire term structure when read alongside the hawkish 2026 dots. Treasury futures and OIS curves have already repriced: CME FedWatch now puts the probability of a December 2026 hike at roughly 22%, up from near zero a week ago, and the probability of a cut has dropped to 38% from 60%.
How the Curve, the Dollar, and Equities Are Trading It
Markets read the SEP as more hawkish than the unanimous hold implies, and the cross-asset response has been orderly but directional. The 2-year Treasury yield rose 8 basis points to 4.05%, the 10-year rose 6 basis points to 4.32%, and the 2s10s spread stayed at 27 basis points, the flattest since March 2023. The dollar index ticked up to 104.20, with EUR/USD at 1.0830 and USDJPY at 152.40. Gold held near $4,300 an ounce as real yields rose, and WTI crude held at $74.20 a barrel. The S&P 500 fell 0.55% into the close, the Dow lost 0.38% after touching a record high earlier in the session, and the Nasdaq lagged on the rate-sensitive rotation.
The market is now trading the policy reaction function, not the rate level, and the policy reaction function just got hawkish. The key variable for the next two weeks is the May PCE release on June 27. If core PCE prints at or above 0.27% month-on-month, that annualises to 3.3% and validates the median dot’s hawkish tilt. If it prints at or below 0.23% month-on-month, that annualises to 2.8% and the one-cut narrative is back on the table. Either print sets up a binary trade into the July FOMC, and Warsh’s communication review means the dot may not be the focal point it has been since 2012.